We’ve already answered the questions, what is a stock? and what are dividends? But maybe you’re wondering, what are capital gains? Well, at some point you will want to sell your stock, hopefully for a profit.
Capital gains result when you sell an investment for more than you bought it for. Likewise with a capital loss, which is simply selling an investment for less than you originally paid. With multiple purchases and commissions paid, you will also need to calculate your adjusted cost base to accurately work out the capital gain or capital loss.
Note that it’s American tax information in the infographic. In Canada, 50% of your capital gains are taxed at your marginal tax rate. While you can claim capital losses at this same rate, you can also carry them forward indefinitely (or back three years) to offset any future (or previous) capital gains.
This infographic created by Mint answers the question, what are capital gains? You’ll want to stop by next Monday for a special post about Mint. (click image to enlarge)